Ministry sets ball rolling for coal linkage auctions

After putting in place auctions for allocation of coal mines, the Centre is set to auction coal linkages for sectors such as steel, cement and aluminium.

The draft policy details for auctioning of coal linkages were issued by the Coal Ministry on Thursday and feedback from public has been sought. The policy is expected to be approved after a month.

Ensuring transparency As per the Ministry’s plan, existing fuel supply agreements to the unregulated sector (steel, cement and aluminium) will terminated by July 2016 and all future linkages will be allotted through auctions. “We felt there was need for transparency for determining who should get the linkages and at what prices. This is because in the unregulated sector, the consumer does not get the benefit of cheaper coal supply to these sectors,” said Anil Swarup, Secretary, Coal Ministry.

The auction for the coal linkages will follow a mechanism different from that of the coal block auctions.

The Ministry has proposed a system called the Supply Controlled Ascending Marketing Clearing Auction, which is similar to how telecom spectrum auctions work.

Explaining the process, Swarup said after determining the available coal for linkages from Coal India, bids will be invited at a price determined by the government. If the demand exceeds the availability, the price will be raised where some players will drop out. The Centre will keep increasing the price till the demand matches availability.

“Suppose we earmark 10 million tonne of coal for linkages to steel plants and there is a demand for 30 million tonne.

“We will determine a price, for example ₹1,200/tonne and invite bids. If all of them say they are okay at that rate, then we will raise the price. Some users may drop out. So, we will keep raising the price till demand and supply match,” he said.

He added that this methodology is being used to create a pool of users who are prepared to pay market driven price for coal linkages as in a traditional auction, where the highest bidder gets the entire available amount. The linkages are proposed to be auctioned for five years. SBI Capital Markets has been appointed as the consultant for developing the methodology for the coal linkage auctions.

An inter-ministerial committee has already met five times to determine the future course of action.

“We have been getting some feedback already as the minutes of the inter-ministerial committee meetings on this issue have been made public. We hope to get the policy approved within a month. Auctioning of linkages could even start before July 2016,” said Swarup.